1. | Projected sales for December of 20x0 are $500,000. Credit sales typically are 60 percent of total sales. Globals credit experience indicates that 30 percent of the credit sales are collected during the month of sale, and the remainder are collected during the following month. 2. | Global Electronics cost of goods sold generally runs at 70 percent of sales. Inventory is purchased on account, and 50 percent of each months purchases are paid during the month of purchase. The remainder is paid during the following month. In order to have adequate stocks of inventory on hand, the firm attempts to have inventory at the end of each month equal to half of the next months projected cost of goods sold. | 3. | Hanson has estimated that Globals other monthly expenses will be as follows: | | | | | Sales salaries | $ | 35,000 | | Advertising and promotion | | 16,000 | | Administrative salaries | | 35,000 | | Depreciation | | 15,000 | | Interest on bonds | | 1,875 | | Property taxes | | 600 | | | | In addition, sales commissions run at the rate of 1 percent of sales. | 4. | Global Electronics president, Davies-Lowry, has indicated that the firm should invest $125,000 in an automated inventory-handling system to control the movement of inventory in the firms warehouse just after the new year begins. These equipment purchases will be financed primarily from the firms cash and marketable securities. However, Davies-Lowry believes that the company needs to keep a minimum cash balance of $25,000. If necessary, the remainder of the equipment purchases will be financed using short-term credit from a local bank. The minimum period for such a loan is three months. Hanson believes short-term interest rates will be 10 percent per year at the time of the equipment purchases. If a loan is necessary, Davies-Lowry has decided it should be paid off by the end of the first quarter if possible. | 5. | Global Electronics board of directors has indicated an intention to declare and pay dividends of $50,000 on the last day of each quarter. | 6. | The interest on any short-term borrowing will be paid when the loan is repaid. Interest on Global Electronics bonds is paid semiannually on January 31 and July 31 for the preceding six-month period. | 7. | Property taxes are paid semiannually on February 28 and August 31 for the preceding six-month period. | Required: | Prepare Global Electronics Companys master budget for the first quarter of 20x1 by completing the following schedules and statements. Sales budget: | | | 20x0 | 20x1 | | December | January | February | March | First Quarter | Total sales | | | | | | Cash sales | | | | | | Sales on account | 0 | 0 | 0 | 0 | 0 | | 2. Cash Receipts Budget | | | 20x1 | | January | February | March | First Quarter | Cash sales | | | | | Cash collections from credit sales made during current month | | | | | Cash collections from credit sales made during preceding month | | | | | Total cash receipts | | | | | | 3. Purchases Budget | | | 20x0 | 20x1 | | December | January | February | March | First Quarter | Budgeted cost of goods sold | | | | | | Add: Desired ending inventory | | | | | | Total goods needed | | | | | | Less: Expected beginning inventory | | | | | | Purchases | | | | | | 4. Cash Disbursements Budget | | | 20x1 | | January | February | March | First Quarter | Inventory purchases: | | | | | Cash payments for purchases during the current month | | | | | Cash payments for purchases during the preceding month | | | | | Total cash payments for inventory purchases | $0 | $0 | $0 | $0 | Other expenses: | | | | | Sales salaries | | | | | Advertising and promotion | | | | | Administrative salaries | | | | | Interest on bonds | | | | | Property taxes | | | | | Sales commissions | | | | | Total cash payments for other expenses | $0 | $0 | $0 | $0 | Total cash disbursements | | | | | | 5. Summary | | | 20x1 | | January | February | March | First Quarter | Cash receipts (from part 2) | | | | | Less: Cash disbursements (from part 4) | | | | | Change in cash balance during period due to operations | | | | | Sale of marketable securities (1/2/x1) | | | | | Proceeds from bank loan (1/2/x1) | | | | | Purchase of equipment | | | | | Repayment of bank loan (3/31/x1) | | | | | Interest on bank loan | | | | | Payment of dividends | | | | | Change in cash balance during first quarter | | | | | Cash balance, 1/1/x1 | | | | | Cash balance, 3/31/x1 | | | | | | 6. Calculation of required short term borrowing | | | | Projected cash balance as of December 31, 20x0 | | Less: Minimum cash balance | | Cash available for equipment purchases | | Projected proceeds from sale of marketable securities | | Cash available | | Less: Cost of investment in equipment | | Required short-term borrowing | | 7. Prepare Intercoastal Electronics budgeted income statement for the first quarter of 20x1. (Ignore income taxes.) | | INTERCOASTAL ELECTRONICS COMPANY | Budgeted Income Statement | For the First Quarter of 20x1 | | | | | | | | | $0 | Selling and administrative expenses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total selling and administrative expenses | | 0 | | | | 8. Prepare Intercoastal Electronics budgeted statement of retained earnings for the first quarter of 20x1. | | INTERCOASTAL ELECTRONICS COMPANY | Budgeted Statement of Retained Earnings | For the First Quarter of 20x1 | Retained earnings, 12/31/x0 | | | | | | Retained earnings, 3/31/x1 | | 9. Prepare Intercoastal Electronics budgeted balance sheet as of March 31, 20x1. (Hint: On March 31, 20x1, Bond Interest Payable is $6,000 and Property Taxes Payable is $600.) | | INTERCOASTAL ELECTRONICS COMPANY | Budgeted Balance Sheet | March 31, 20x1 | | | | | | | | | | | Total assets | | | | | | | | | | | | | | | | Total liabilities and stockholders' equity | | | | | | | | |